Newbie questions

Beginner Questions
1

Hi all,

So I came across this forum just after Christmas and started the School of Pipsology. For around a week, I was glued to my screen for at least a few hours a day, however due to work commitments I slacked a bit and have started looking around the forums again recently. I’m currently at the beginning of High School in the SoP and have found it very useful so far - my plan is to set a bit of time aside every day to go through the rest of the school.

In the meantime, I have a few questions from my general observations which I would appreciate if someone could help me with (unless the rest of the school will answer some of these?). I imagine a lot of new traders will be asking similar questions:

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[li] I am from the UK so my account will be in GBP. Am I right in saying that if I was to trade e.g. a EUR:USD pair that I’m actually trading 2 currency pairs as I have to exchange my GBP in EUR before I can trade EUR:USD? If this is the case then I guess there’s a second level of risk I have to look out for as if my trade is successful, the GBP:EUR might move in a direction that wipes out my profit?
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[li] Is forex trading a nil gain nil loss market? In other words, we are trading against other traders and overall the market equals out?
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[li] When entering into a transaction, how can brokers always have a party willing to take the other end of the transaction e.g. if I buy something like 0.567 lots EUR:USD @ 1.1406, how can the trader sell the exact same amount of EUR:USD at the same price (assuming no spread). Surely there is no seller specifically for that amount and that given time?
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[li] What influences movement on a smaller scale e.g. on a day where no major news released or anything? Is it just simply the number of buyers and seller competing against each other?
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[li] Is there a preferred time frame that people use to trade? I know this depends on the traders preference, however I was a bit confused as looking at (for example) a one minute chart, there would be a ridiculous amount of fluctuations which would make technical analysis really confusing and hard to find trends.
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[li] Am I correct in saying that technical analysis is to an extend self fulfilling because of the fact that all buyers/sellers in the market look at graphs in the same way? The reason I ask this is because something like Fibonacci’s retracement has nothing to do with trading in my own head (I might get shot down for this). It’s just a mathematical theory which has been applied to charts to aid people as to when to trade. As everyone looks at this in the same way, it becomes self fulfilling?
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[li] How many trades do people typically make in one day? Again I know this is one of those ‘how long is a piece of string’ questions…
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[li] Do you have to leverage your trades? The platform that I have been using (Trading 212 - which I don’t intend to use when I properly start trading) automatically does this but I imagine you don’t have to? I couldn’t see a setting to change this.
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[li] On 29th December at around 11pm UK time, the GBP:USD went up and down repeatedly by around a pip or two every second. What was the reason for this? I tried looking straight after but couldn’t see any reason?
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Apologies for the list of questions but any help would be much appreciated and hopefully other beginners will find it useful too! :slight_smile:

2

Some excellent questions there, and when I get in front if a pc (I’m using a tablet at the moment) ill try and give some answers, unless im beaten to it.

Ill start now on your 1st question.
You don’t need to do anything. You deposit your gbp with your broker. When you trade any pair any calculations are made behind the scenes. You aren’t actually buying or selling anything, in essence you are guessing that one of the currency pair will appreciate in value against the other. So, if you clicked “buy” on EurUsd, you are hoping the Euro will rise relative to the Dollar.

3

The “so” isn’t necessarily right, there. You can (normally, at least) choose in which currency your account is.

It will be converted for you, each time you trade.

The important thing to be aware of, in this context, is that (assuming you’re using a counterparty market-maker as a “broker”, like more than 99% of this forum’s members), when you buy EUR/USD you’re actually neither buying Euros nor selling Dollars - you’re simply have a bet with a counterparty on which way the price will move. This post explains it well and clearly and will help you.

Apart from commissions and spreads, yes.

Again, the post linked to above explains this.

Exactly the same thing that influences it on a bigger scale and if there is major news released: imbalances between buying pressure and selling pressure. It’s essential to understand this clearly, and not be led astray by imagining that “news moves markets”. I’ve tried to explain it in simple, straightforward terms here (using “bricks” as an analogy for “lots” of currency). Whether it will help, or not, I’m not sure, but it’s probably the best I can offer, from the “mechanical” perspective.

Nearly, but not quite: not just the numbers of potential buyers/sellers but the volumes they want to transact, too.

Preference, as you say. (It’s perfectly possible to find trends on M1 charts, or even faster ones: they’re just smaller trends than those on higher time-frame charts.)

Some people believe that an element of that is significant in the markets. This is a “view”, actually, rather than a “theory”, and not really one I subscribe to, myself.

Good head, you have, there. Keep it that way.

Some people think that Fibonacci is just guesswork.

I think it’s distinctly worse than just guesswork: I think it’s delusional nonsense. Horoscopes are positively scientific, compared with the way traders try to use Fibonacci levels, in my opinion. I’ve never seen anything other than anecdotal, cherry-picked evidence suggesting that Fibonacci levels are any better or more predictive or meaningful than “random line theory” (which, by the way, can be really impressive-looking, too).

But I’ve seen a [U]lot[/U] of objective, independent, academic evidence showing that they’re not.

One might find this link about the use and abuse of Fibonacci numbers, in general interesting. :slight_smile: (Just my “two pips” :wink: ).

(So I’ll get shot down with you, but I’m more used to it than you are!).

Yes, it is. I make about 7-8 trades per day. Most people here make fewer. Some scalpers do 150-200 per day.

You might as well, but don’t overdo it.

Unless you have a huge account, you can’t get far with no leverage at all.

(Yes, avoid Trading 212 when you start “properly”, and do your demo practice in the same place where you’re going to start “properly” so that when you start using real money, you’re already used to all the details of the broker’s interface, policies and practices, terms and conditions, technicalities, support-desk, and so on, and don’t have to re-acclimatise to all those things at the same time as experiencing the psychological pressures of trading with real money for the first time. Quite important, this.)

An imbalance between buying pressure and selling pressure! :wink:

(I don’t know; sorry.)

And welcome to the forum. :slight_smile:

4

Just to add, even if you deposit in GBP - it may be worth thinking about holding a USD denominated account, especially if you intend to primarily trade currency pairs comprising of XXX/USD (such as EUR/USD and GBP/USD).

The reason for this is simply because your P&L will be realised in USD - it makes the calculations a lot easier, and is a common choice between traders.

EDIT: Just seen Lexys comprehensive response, mine was a snap response to the first question!

5

Yes, I agree … :cool:

6

Thanks Carlos - appreciate that.

Oh I see - my main concern is that by trading e.g. EUR:USD I’m subconsciously trading GBP:EUR as well and exposing myself to unnecessary risk. If this isn’t the case then that’s fine.

The reason I am confused is because lets say I trade EUR:USD and the total gain is 500 EUR (I’m longing Euro therefore buying EUR and selling at a higher price). At the same time, the EUR is moving against the GBP so wouldn’t my returns be variable and dependant on how EUR has moved against GBP? So if after day 2 I’m at a 400 EUR gain, and day 3 a 500 EUR gain but the in day 3 the GBP strengthens, then potentially I would have been in a better position at a 400 EUR gain with a weaker GBP exchange rate.

Sorry if I’ve completely misunderstood your answer and confused you with that example (as well as myself!).

7

Following on from this, deposit your money in Gbp with your broker, then have them show your funds and trades in Usd.
Don’t do what I did on my first account and get your bank to send dollars to your broker, you’ll get hit with conversion costs

8

Wow thanks for the replies lexys and jezzode - need to log off temporarily but will have a look when I get back later today.

Can I just say, I’m impressed by the response and willingness of members to help :slight_smile:

9

Ok, I’ve had a chance to have a proper read through this and I think I now have an idea of the answers to all my questions apart from one:

[B][ul]
[li]On 29th December at around 11pm UK time, the GBP:USD went up and down repeatedly by around a pip or two every second. What was the reason for this? I tried looking straight after but couldn’t see any reason?
[/li][/ul]

Anyone know what was happening then?[/B]

Lexys - thanks again for taking time to asnwer those questions :slight_smile: In fact I just realised it was also you who replied to my first ever thread with an interesting post on the 5 most common mistakes…it seems like you know this forum inside out!

11

Ooh, I hadn’t even realised that was you … in which case Hello again. :8: :slight_smile:

Regarding this incident of December 29th, things like that can be a bit anomalous and mysterious. Is it just one specific broker’s feed that showed this unusual fluctuating pattern (in which case it might be just a temporary data-feed problem “over the holidays” when there was no liquidity?) or have you seen it in several different places? I’m asking only because it strikes me that one possibility might be that it’s “what one broker was displaying about their own private prices between themselves and their own customers” that you’re really asking about, rather than some strange thing to do with the interbank market itself? (Also, which time zone are you in, and might that have been “market opening time” in Tokyo, or something?). Probably not too significant, anyway, I suspect(?).

13

Thanks guys - I think that’s all questions answered in one day…I can’t complain haha.

Right I’ll go study some more and I’m sure I’ll have many more questions in a few weeks…:slight_smile: